From the Chief Executive Officer’s desk – August 2015

There are many who are sympathetic to that argument. They believe strongly that a strong currency is not in a country’s economic interest. Indeed, generally it is true that a weak – I prefer to use the word “competitive” – currency can work in favour of exporters. I say that it “can” work in favour of exporters because, although that would be the case most of the time, it is by no means always the case.

However, far more important than the relative strength of a country’s currency is the degree to which business in that country is efficient and internationally competitive in its production processes. Higher efficiency and productivity levels in a company place that company in a position where it can reduce its production costs and compete successfully abroad in terms of price against products of similar quality.

High input costs – including administered costs – impact negatively on a company’s competitiveness domestically and internationally, especially when its competitors elsewhere in the world have lower input costs. Invariably, such a company’s products are likely to be priced more expensively than those of its competitors.
Personally, I have never belonged to the “lower-the-rand-value-to-promote-exports” brigade.

I have long been sceptical of the calls on the South African Reserve Bank and the Government to take measures to weaken the rand. It has always been my view that exports solely driven or made possible by a weak currency are not sustainable. After all, an unfixed currency will always fluctuate up and down, depending on various economic and political factors in a country and around the world.
Admittedly, it is far more preferable to have a stable currency that does not fluctuate wildly.

Such a stable currency makes it possible for a company or a country to take a long-term view and plan months or years in advance with a relative degree of certainty. While not impossible, nevertheless it is difficult to make long-term plans with an unreliable currency that fluctuates wildly in comparison to the established, major currencies.

Comparatively the US dollar, the euro and the British pound have been among the strongest currencies over the years – and yet, without fail, consistently businesses in those countries/jurisdictions have been among the biggest international exporters. Reliant on technology and a better educated workforce, businesses in those countries have become more efficient in their production processes.

The weakness of the South African rand over the past two years has been very concerning. It has left millions of South Africans poorer than they were two years ago and negatively affected even those who have long been proponents of a weak rand. After all, even exporters have to purchase various, foreign currency-denominated capital equipment from abroad.

The week rand means that it has become that more expensive for South Africans to travel abroad or to buy many imported products. This happens at a time when various direct and indirect taxes have been increased in South Africa, thus making our lives much more difficult.

South African businesses need to improve their efficiencies, wherever possible in our rigid labour regime, in order to be competitive internationally. A weak rand cannot be the solution for their challenges. It does more harm than good to the country.

August is Women’s Month in South Africa. It is a month that reminds South Africans – including business leaders – to be mindful and appreciative of our women compatriots and their contribution to the country’s development over the years.

For the second year in a row, SEIFSA has organised a Women’s Day function to celebrate women in the metals and engineering sector. I ask you to support the event and to harness women’s talents in your respective businesses.

To my colleagues at SEIFSA, all the women in the metals and engineering sector and, indeed, our female compatriots, Happy Women’s Day on 9 August and Happy Women’s Month.

Related Articles

Manufacturing in South Africa is in serious trouble

By Mr Kaizer Nyatsumba

Manufacturing in South Africa is in serious trouble. Instead of getting better, the situation continues to worsen.

A very important sector of the economy that has been such a significant contributor to our Gross Domestic Product and our balance of payments over the years, manufacturing’s share of the economy has shrunk from 20% in 1983 to 16% in 2013. Between 1983 and 2003, manufacturing’s share of the economy declined by a percentage point each decade, with the decline accelerating to two percent in the last decade: from 18% in 2003 to 16% in 2013.

Responses